We examine the short-selling in the Hong Kong stock market and find that, after the lift of short-sales constraint, the R2 increases, contradicting the traditional wisdom that R2 is a proxy of price inefficiency. Moreover, the change of R2 is from the decrease in idiosyncratic volatility.

We extend the EKOP model and estimate the probability of informed trading of institutions (SPIN) and individuals (DPIN) respectively. Using a unique dataset of Chinese stock market, we confirm that institutions are better informed by documenting a significantly higher SPIN.